Bharat Dynamics Limited's (NSE:BDL) 32% Jump Shows Its Popularity With Investors

Bharat Dynamics Limited (NSE:BDL) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 79%.

Following the firm bounce in price, when almost half of the companies in India's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 10.1x, you may consider Bharat Dynamics as a stock not worth researching with its 26.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Bharat Dynamics

What Does Bharat Dynamics' P/S Mean For Shareholders?

Recent times haven't been great for Bharat Dynamics as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Bharat Dynamics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Bharat Dynamics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Bharat Dynamics' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 4.7%. However, this wasn't enough as the latest three year period has seen an unpleasant 5.9% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 38% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 27% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Bharat Dynamics' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Bharat Dynamics' P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Bharat Dynamics shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Bharat Dynamics is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Bharat Dynamics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.